Essays in Signaling, Learning, and Information

My dissertation includes three essays in microeconomic theory which consider questions of signaling, learning, and information.My first chapter studies the long-term interaction between two overconfident agents who choose how much effort to exert while learning about their environment. Overconfidence causes agents to underestimate an extrinsic aspect of their environment to justify their worse-than-expected perfor- mance. My co-author and I show that in many settings, agents create informational externalities for each other. Under positive informational externalities, the agents’ learning processes are mutually- reinforcing: one agent best responding to his own overconfidence causes the other agent to reach a more distorted belief and take more extreme actions, generating a positive feedback loop. The opposite pattern, mutually-limiting learning, arises under negative informational externalities. My second chapter proposes a model of purchase order financing (POF), a technique for funding firms with low collateral via debt where investors consider a firm’s purchase order agreements (POAs) with future customers when deciding to fund a firm. I identify a unique Intuitive WPBE. Firms with higher demand write POAs which reflect the full extent of their demand to address adverse selection and moral hazard concerns, while firms with lower demand, ‘shade down’ their POAs to avoid larger penalties if production fails. I compare POF to traditional debt financing, demonstrating how firms with little collateral use POF to address credit rationing. The final chapter explores how an opposition party strategically times evidence-backed accusations against a political candidate, when an accusation triggers a formal investigation which the candidate may obstruct. My co-author and I characterize the optimal dynamic obstruction strategy through- out an investigation. We then solve for the opposition’s release decision; when the opposition is ahead or they have strong evidence, they wait until right before the election to release evidence—an October Surprise—to minimize voter’s belief movement. When the opposition is behind or they have weak evidence, they release evidence immediately, allowing time for a full investigation. Ob- struction interacts with this timing decision by making investigations less informative and inducing more October Surprises, which reduce voter information and welfare.